For Immediate Release
Chicago, IL – November 9, 2010 – Zacks.com Analyst Blog features: Berkshire Hathaway (BRK.B), American International Group Inc. (AIG), MetLife Inc. (MET), Fortress Investment Group LLC (FIG) and Prudential Financial Inc. (PRU).
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Here are highlights from Monday's Analyst Blog:
Berkshire Gains on Higher Revenues
Berkshire Hathaway (BRK.B) third-quarter operating earnings of $1.13 per share were a penny ahead of the Zacks Consensus Estimate of $1.12 per share. Earnings, however, compared favorably to 88 cents per share reported in the prior-year quarter.
Results of the conglomerate were positively affected by a more than twofold increase in operating earnings from its non-insurance businesses – Utilities & Energy and Manufacturing, Service & Retailing. Its insurance business, which includes underwriting and investment, however, reported a 20% decline in operating earnings. Overall operating earnings increased 35.6% over the prior-year period.
However, net income, which takes into account investment and derivatives, came in at $1.2 per share, down 14% year over year, due to just $202 million of gains compared with $1.2 billion in the year-ago quarter.
Total revenue increased 21.4% year over year to $36.3 billion, due to revenue increases all across the board. However, Burlington Northern (“BNSF”) acquired in February 2010, was the major contributor to the upswing.
Investment and derivatives gains during the quarter amounted to $202 million compared with $1.2 billion in the prior year quarter, due to a decline in the estimated value of non-US contracts related to equity index put option markets. However, there have been no loss payments to date. The ultimate payment obligations, if any, under equity index put option contracts will be determined when the contracts expire, beginning in 2018.
AIG Sways to Loss on High Charges
American International Group Inc. (AIG) reported third quarter operating loss of $200 million or $1.47 per share, dramatically behind the Zacks Consensus Estimate of $1.35 per share and operating income of $1.62 billion or $2.42 per share in the year-ago period.
On a GAAP basis, AIG reported a net loss of $2.4 billion or $17.62 per share, compared with a net income of $455 billion or 68 cents per share in the year-ago quarter. This included significant loss from discontinued operations, derivative hedging loss and net realized capital losses, marginally offset by gain from divested businesses. These restructuring-related charges totaled $4.5 billion in the reported quarter.
Discontinued operations loss before income taxes totaled $2.5 billion, including the loss from the pending sale of American General Finance Inc. (AGF) and the AIG Star and AIG Edison goodwill impairment charge discussed above, compared to income before taxes of $312 million in the comparable 2009 period. AIG's ALICO, AGF, AIG Star and AIG Edison are reported as discontinued operations post the sale of these units.
Although results appeared sluggish due to AIG's ongoing business restructuring process, stability continues to persist in insurance operations that drove the book value per share during the quarter.
AIG's continuing insurance operations reported an adjusted operating income (before net realized capital gains) of $2.1 billion, significantly ahead of $1.9 billion reported in the year-ago quarter.
Financial Update
As of September 30, 2010, AIG reported a $10.6 billion increase in total equity from year-end 2009 to $108.7 billion. Pro forma book value per common share on AIG shareholders' equity increased 10.3% year over year to $48.24 for the nine months ended September 30, 2010.
Government Loan Update
AIG has already moved ahead with its recapitalization plan, according to which the company has accorded to convert the various ownership interests of the U.S. government to common stock, which will ultimately be sold to public investors. This is expected to close early next year and will pay off debt owed to the FRBNY and leave the U.S. Treasury with a stake in the company of just above 92%. This appears to be an essential step to be taken for the stabilization of AIG.
As of September 30, 2010, AIG had outstanding net borrowings under the FRBNY Credit Facility of $14.3 billion, and accrued interest and fees of $6.2 billion, while $14.9 billion remained available. As of September 30, 2010, the remaining available amount with the Treasury Department related to Series F Preferred Stock was $22.3 billion.
Business Update
On October 29, AIG completed an initial public offering of 8.08 billion shares of AIA for aggregate gross proceeds of approximately $20.51 billion. Upon completion of the initial public offering (IPO), AIG owned approximately 33% of AIA's outstanding shares.
On November 1, AIG also closed the sale of its ALICO unit to MetLife Inc. (MET) for approximately $16.2 billion.
On August 10, the company entered into a definitive agreement to sell 80% of AGF for $125 million to Fortress Investment Group LLC (FIG). The deal is expected to close by the end of 2010.
On September 29, AIG also agreed to sell Japan-based AIG Star and AIG Edison to Prudential Financial Inc. PRU for $4.8 billion, whereby the deal is scheduled for the first half of 2011.
Besides, AIG is also looking forward to divest its Nan Shan insurance unit in Taiwan by the end of 2011. Alongside, management is also eyeing an IPO for ILFC apart from other growth alternatives to improve and stabilize this unit.
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